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Problem 11-10 Capital budgeting criteria: mutually exclusive projects A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2

Problem 11-10 Capital budgeting criteria: mutually exclusive projects

A firm with a WACC of 10% is considering the following mutually exclusive projects:

0 1 2 3 4 5
Project 1 -$250 $65 $65 $65 $180 $180
Project 2 -$700 $200 $200 $40 $40 $40

Which project would you recommend?

Select the correct answer.

I. Project 2, since the NPV2 > NPV1.
II. Both Projects 1 and 2, since both projects have NPV's > 0.
III. Both Projects 1 and 2, since both projects have IRR's > 0.
IV. Project 1, since the NPV1 > NPV2.
V. Neither A or B, since each project's NPV < 0.

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